<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 1997 Commission file number 0-17804
----------------- ---------------
CECO FILTERS, INC.
- --------------------------------------------------------------------------------
DELAWARE 23-2399315
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1027-29 CONSHOHOCKEN ROAD, CONSHOHOCKEN, PA 19428-0683
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-825-8585
------------------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class: COMMON, PAR VALUE $.001 PER SHARE OUTSTANDING at 3/31/97 6,867,667
---------------------------------
<PAGE>
CECO FILTERS, INC.
------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1997
- --------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I - Financial Information:
Condensed consolidated balance sheet as of
March 31, 1997 and December 31, 1996 2
Condensed consolidated statement of operations for the
three-month periods ended March 31, 1997 and 1996 3
Condensed consolidated statement of cash flows
for the three-month periods ended March 31, 1997 and 1996 4
Notes to condensed consolidated financial statements 5
Management's discussion and analysis of the
financial condition and results of operations 6 to 8
Report on Review by Independent Accountants 9
Signature 10
</TABLE>
- - 1 -
<PAGE>
CECO FILTERS, INC.
------------------
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 346,812 $ 374,186
Accounts receivable 1,271,335 2,077,045
Inventories 597,696 565,371
Prepaid expenses and other current assets 56,427 40,439
Deferred income taxes 58,735 58,735
---------- ----------
Total current assets 2,331,005 3,115,776
Property and equipment, net 1,699,709 1,782,087
Intangible assets, at cost, net 103,696 88,144
Investment in CECO Environmental Corp. 230,000 230,000
---------- ----------
$4,364,410 $5,216,007
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ -- $ 400,000
Current portion of long-term debt 80,422 83,100
Current portion of capital lease obligation 6,043 6,043
Accounts payable and accrued expenses 872,368 1,205,795
Accrued income taxes 87,136 276,976
---------- ----------
Total current liabilities 1,045,969 1,971,914
Long-term debt, less current portion 1,113,220 1,132,869
Capital lease obligation, less current portion 8,364 9,882
---------- ----------
2,167,553 3,114,665
---------- ----------
Shareholders' equity:
Common stock, $.001 par value; 20,000,000
shares authorized, 6,867,667 shares issued
and outstanding 6,868 6,868
Capital in excess of par value 915,984 915,984
Retained earnings 1,274,005 1,178,490
---------- ----------
Total shareholders' equity 2,196,857 2,101,342
---------- ----------
$4,364,410 $5,216,007
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- - 2 -
<PAGE>
CECO FILTERS, INC.
------------------
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $2,540,396 $2,150,657
---------- ----------
Costs and expenses:
Cost of sales 1,314,871 1,140,322
Selling and administrative 878,147 787,580
Management fees - CECO Environmental Corp. 60,000 60,000
Depreciation and amortization 99,630 94,050
---------- ----------
2,352,648 2,081,952
---------- ----------
Income from operations 187,748 68,705
Interest expense ( 28,633) ( 43,459)
---------- ----------
Income before provision for income taxes 159,115 25,246
Provision for income taxes 63,600 10,000
---------- ----------
Net income $ 95,515 $ 15,246
========== ==========
Net income per share * $ .01 $ .00
========== ===========
</TABLE>
* Based on weighted average shares outstanding of 6,867,667 for each period.
See accompanying notes to condensed consolidated financial statements.
- - 3 -
<PAGE>
CECO FILTERS, INC.
------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 95,515 $ 15,246
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 99,630 94,050
(Increase) decrease in operating assets:
Accounts receivable 805,710 244,210
Inventories ( 32,325) 83,468
Prepaid expenses and other current assets ( 15,988) ( 17,329)
(Decrease) in operating liabilities:
Accounts payable and accrued expenses (333,427) (329,212)
Accrued income taxes (189,840) ( 2,890)
-------- --------
Net cash provided by operating activities 429,275 87,543
-------- --------
Cash flows from investing activities:
Additions to property and equipment and intangible assets ( 32,804) ( 32,296)
Advance to officer - ( 20,000)
-------- --------
Net cash (used in) investing activities ( 32,804) ( 52,296)
-------- --------
Cash flows from financing activities:
Repayment of short-term obligations (400,000) -
Repayments of long-term debt and capital lease obligation ( 23,845) (128,930)
-------- --------
Net cash (used in) financing activities (423,845) (128,930)
-------- --------
Net (decrease) in cash ( 27,374) ( 93,683)
Cash at beginning of period 374,186 184,248
-------- --------
Cash at end of period $346,812 $ 90,565
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 28,633 $ 43,460
-------- --------
Income taxes $270,040 $ 12,310
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- - 4 -
<PAGE>
CECO FILTERS, INC.
------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- --------------------------------------------------------------------------------
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of March 31, 1997 and the
results of operations and cash flows for the three-month periods ended
March 31, 1997 and 1996. The results of operations for the three-month
period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year.
2. Margolis & Company P.C., the Company's auditors, has performed a
limited review of the financial information as of and for the
three-month periods ended March 31, 1997 and 1996 which is included
herein. Their report on such reviews accompanies this filing.
3. Inventories consisted of the following:
March 31, December 31,
1997 1996
-------- ------------
Raw materials $380,253 $410,949
Work-in-process 33,200 -
Finished goods 184,243 154,422
-------- --------
$597,696 $565,371
======== ========
4. Related Party Transactions
--------------------------
Management Fees
---------------
The Company incurred management fees amounting to $60,000 during each of
the three-month periods ended March 31, 1997 and 1996, pursuant to an
agreement between the Company and CECO Environmental Corp. ("CEC"), a
majority shareholder of the Company. CEC provides management and
financial consulting services to the Company in exchange for a
management fee.
- - 5 -
<PAGE>
CECO FILTERS, INC.
------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
General
- -------
CECO Filters, Inc. ("CECO") is comprised of the CECO Group of companies -
CECO Filters, Inc., Air Purator Corporation, Compliance Systems
International, Inc., and U.S. Facilities Management Company, Inc.
(collectively referred to as "the Company") - which provide innovative
solutions to air quality problems through particle and chemical control
technologies and services.
CECO manufactures and markets filters known as fiber bed mist eliminators
designed to trap, collect and remove solid soluble and liquid particulate matter
suspended in an air or other gas stream whether generated from a point source
emission or otherwise. Air Purator Corporation ("APC") designs and manufactures
high performance filter media and bags for use in high temperature pluse-jet
baghouses, the most effective type of baghouse for capturing submicron
particulate from gas streams. Compliance Systems International ("CSI") offers
new technologies, Catenary Grid(R) and Narrow Gap Venturi(TM), designed for use
with heat and mass transfer operations and particulate control. CSI also offers
a complete range of air quality consulting services using a proprietary network
of industry experts with years of air quality and purification system knowledge.
Our newest subsidiary, U.S. Facilities Management Company, Inc. ("USFM")
provides facilities management and emission control systems, software and
outsourced monitoring and/or maintenance services to help customers achieve air
quality and operational goals.
Results of Operations
- ---------------------
The following table sets forth income line items shown on the condensed
consolidated statement of operations, as a percentage of net sales for the
periods indicated. This table should be read in conjunction with the condensed
consolidated financial statements and notes thereto.
Three Months Ended
March 31,
1997 1996
------ -----
Revenues 100.0% 100.0%
----- -----
Cost and expenses:
Cost of sales 51.8 53.0
Selling and administrative 34.5 36.6
Management fees - CECO Environmental Corp. 2.4 2.8
Depreciation and amortization 3.9 4.4
----- -----
92.6 96.8
----- -----
Income from operations 7.4 3.2
Interest expense ( 1.1) ( 2.0)
----- -----
Income before provision for income taxes 6.3 1.2
Provision for income taxes 2.5 .5
----- -----
Net income 3.8% .7%
===== =====
- - 6 -
<PAGE>
CECO FILTERS, INC.
------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
Results of Operations - Continued
- ---------------------------------
Comparison of Three Months ended March 31, 1997 to Three Months ended March 31,
1996
- --------------------------------------------------------------------------------
Sales were approximately $2.5 million and $2.1 million for the three months
ended March 31, 1997 and 1996, respectively, an increase of 18.1%. The increase
in sales from 1996 to 1997 resulted primarily from more sales orders and higher
backlog at the end of 1996. APC's sales more than doubled compared to the same
quarter in the previous year. Sales of our core CECO filter media benefited from
contractual supply agreements in the private sector. These increases were offset
by a reduction of new systems sales of CSI scrubbers and CECO mist eliminators
caused by capital spending constraints in our targeted market segments.
The Company's backlog of orders at March 31, 1997 was approximately $3.9 million
as compared to approximately $3.5 million at March 31, 1996. There can be no
assurance that order backlog will be replicated, or increased, from quarter to
quarter, or that it will translate into higher revenues in the future. The
success of the Company's operating results can be significantly impacted by the
introduction of new products and/or new manufacturing technologies by
competitors, rapid change in the demand for its product, decrease in the average
selling price over the life of a product as competition increases, and the
Company's implementation of its target marketing approach.
The Company's overall cost of sales decreased as a percentage of sales for the
three months ended March 31, 1997 (51.8%) compared to the three months ended
March 31, 1996 (53.0%). The decrease can be attributed to decreases in raw
material costs as well as reduced costs incurred to service the Company's
products.
The Company's selling and administrative expenses amounted to $878,147 for the
three-month period ended March 31, 1997 compared to $787,580 for the three-month
period ended March 31, 1996, representing an increase of $90,567, or 11.5%. A
substantial portion of the selling and administrative expenses are fixed in
nature. However, sales and customer service positions were increased as part of
the Company's overall restructuring to strengthen marketing approach and
accommodate anticipated growth. In addition, a portion of this increase in
selling and administrative expenses resulted from the newly formed subsidiary
(USFM) which is still in the start-up stage. It is expected that USFM will begin
to generate significant revenues in the second half of the year.
The Company entered into a management and consulting agreement with CECO
Environmental Corp. ("CEC") during 1994. The terms of the agreement require
payment of monthly fees of $20,000 through December, 1998 in exchange for
management and financial consulting services involving corporate policies;
marketing; strategic and financial planning; and mergers, acquisitions and
related matters. The Company incurred management fees to CEC of $60,000 during
each of the three-month periods ended March 31, 1997 and 1996.
Interest expense decreased during the three-month period March 31, 1997 when
compared to the same period in 1996. The decrease in interest expense can be
attributed principally to lower utilization of the line of credit.
- - 7 -
<PAGE>
CECO FILTERS, INC.
------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
Results of Operations - Continued
- ---------------------------------
Comparison of Three Months ended March 31, 1997
to Three Months ended March 31, 1996 - Continued
- ------------------------------------------------
The Company generated pre-tax income of $159,115 for the three-month period
ended March 31, 1997 as compared to $25,246 for the three-month period ended
March 31, 1996. This change is attributed primarily to the increase in sales for
the three-month period ended March 31, 1997 over the comparable period in 1996.
The provision for federal and state income taxes for the three-month period
ended March 31, 1997 amounted to $63,600 compared to $10,000 for the three-month
period ended March 31, 1996.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
The Company's consolidated cash position decreased slightly from $374,186 on
December 31, 1996 to $346,812 on December 31, 1997. This decrease of $27,374 is
net of cash provided by operating activities of $429,275 during the three-month
period ended March 31, 1997 as compared to the same period in 1996 when the
Company used $87,543 from its consolidated operating activities. The timing of
sales orders and shipments can heavily affect cash provided by or used in
operations. The Company maintains a $1,250,000 line of credit with a commercial
bank of which no amounts were outstanding as of March 31, 1997. The credit
facility is available for working capital needs, investment activities and other
general corporate needs.
The Company's current ratio increased from 1.6 on December 31, 1996 to 2.2 on
March 31, 1997.
Expenditures for property and equipment and intangible assets amounted to
$32,804 for the three-month period ended March 31, 1997, compared to $32,296 for
the three-month period ended March 31, 1996. The Company intends to continue to
invest in capital equipment to support expected continued growth.
The Company believes that the existing sources of liquidity and funds expected
to be generated from operations supplemented by funds available under the bank
line of credit will provide adequate cash to fund the Company's anticipated
working capital and other cash needs in the short term. As the Company's
business continues to grow in the long term, additional working capital funds
may be required and to the extent these additional funds are not generated by
operations, the Company may attempt to access debt or equity markets.
- - 8 -
<PAGE>
MARGOLIS & COMPANY P.C.
Certified Public Accountants and Business Consultants
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CECO Filters, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of CECO
Filters, Inc. as of March 31, 1997 and the related condensed consolidated
statements of operations and cash flows for the three-month periods ended March
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1996 and the related statements
of operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 26, 1997, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1996 is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
/s/ Margolis & Company P.C.
-----------------------------
Certified Public Accountants
Bala Cynwyd, PA
April 17, 1997
401 E. City Avenue Suite 600 Bala Cynwyd, PA 19004-1161
(01) 610.667.6250 Fax: (01) 610.668.8220
MEMBER
[LOGO] BKR
International
Representative Offices in The Principal Cities of The World.
- - 9 -
<PAGE>
CECO FILTERS, INC.
------------------
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CECO FILTERS, INC.
---------------------------
(REGISTRANT)
Date: April 29, 1997
---------------------------
STEVEN I. TAUB, PRESIDENT
- - 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CECO FILTERS, INC. AND SUBSIDIARIES AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 346,812
<SECURITIES> 0
<RECEIVABLES> 1,271,335
<ALLOWANCES> 0
<INVENTORY> 597,696
<CURRENT-ASSETS> 2,331,005
<PP&E> 3,349,238
<DEPRECIATION> 1,649,529
<TOTAL-ASSETS> 4,364,410
<CURRENT-LIABILITIES> 1,045,969
<BONDS> 1,193,642
0
0
<COMMON> 6,868
<OTHER-SE> 2,189,989
<TOTAL-LIABILITY-AND-EQUITY> 4,364,410
<SALES> 2,540,396
<TOTAL-REVENUES> 2,540,396
<CGS> 1,314,871
<TOTAL-COSTS> 2,352,648
<OTHER-EXPENSES> 28,633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,633
<INCOME-PRETAX> 159,115
<INCOME-TAX> 63,600
<INCOME-CONTINUING> 95,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,515
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
